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OATS Phase III - Frequently Asked Questions

Relief from OATS Reporting Requirements

1. The Phase III amendments described in NTM 05-78 (November 2005) contain two different provisions that both provide relief from certain OATS reporting requirements. What is the difference between the two provisions?

The amendments to Rules 7410 through 7470 (OATS Rules) relating to the Order Audit Trail System (OATS) approved by the SEC on September 28, 2005, contain, among other things, two provisions under which members may be relieved of certain OATS requirements. The first provision is an exclusion from the definition of OATS Reporting Member that applies to firms with specific business models that, if they were to report to OATS under the current OATS Rules, would result in duplicative reporting because another member firm is reporting essentially the same information to FINRA. This exclusion from the definition of Reporting Member relieves a firm from the full recording and reporting requirements of the OATS Rules. However, it does not relieve members from the clock synchronization requirements under Rule 7430.

To determine if a member meets the requirements of the exclusion to the definition of an OATS Reporting Member, the member must carefully review its business model to determine if it meets the criteria specified in FINRA Rule 7410(n). If the member determines that it meets these criteria, the member must have a written agreement with the receiving Reporting Member to which they direct their order flow.

The second provision grants FINRA exemptive authority in certain limited situations to provide relief to small members that do not otherwise qualify for exclusion from the definition of an OATS Reporting Member under FINRA Rule 7410(n). This exemptive authority is limited to firms meeting specific criteria in situations where complying with the full scope of the OATS Rules would be unduly burdensome. The exemptive relief applies only to manual orders and only to the transmission requirements of the OATS Rules. If a member that meets the definition of an OATS Reporting Member wishes to apply for exemptive relief pursuant to FINRA Rule 7470, they must complete and submit a formal request to FINRA Market Regulation. Market Regulation, in conjunction with FINRA's Office of General Counsel, will review each exemption request to determine if granting of such exemption is appropriate. If such a determination is made, the member will be notified in writing by FINRA that an exemption has been granted and the period of time for which the exemption is effective.

Members should note that these two provisions are separate and distinct. If a member does not meet the definition of an OATS Reporting Member, it generally will not be necessary for that member to also apply for exemptive relief pursuant to NASD Rule 7470.

Exclusion from the Definition of Reporting Member (FINRA Rule 7410)

1. My firm sends 100% of our orders to our clearing firm. I believe we no longer meet the requirements of the definition of a Reporting Member; what do we need to have in our agreement with the clearing firm? Do we need to send anything to FINRA?

Firms excluded from OATS reporting because they do not meet the definition of a Reporting Member must have an agreement with the firm to which it sends its order flow ("receiving Reporting Member"). That agreement should specify that the sending firm intends to send all of its orders in Nasdaq and OTC-listed securities to the receiving Reporting Member on a non-discretionary basis for further handling or execution. The agreement should also specify that the receiving Reporting Member will report all orders received from the sending firm to FINRA in accordance with the requirements of the OATS Rules. While the agreement is not required to be filed with FINRA, FINRA reserves the right to request copies of any agreements between the parties as part of its routine surveillance activities.

2. My firm enters all of our orders for Nasdaq and OTC listed securities into our clearing firm's system for further handling or execution by our clearing firm. We maintain the capability, however, to route orders to other destinations. Does my firm still have the responsibility to report to OATS?

If your firm utilizes the capability to route any orders to a destination other than your clearing firm, then your firm meets the definition of a Reporting Member and must report all of its orders for Nasdaq and OTC-listed securities to OATS, including those routed to your clearing firm on a non-discretionary basis.

4. What monitoring resources will be made available to member firms that qualify for the exclusion to the definition of reporting member?

Firms that do not meet the definition of "Reporting Member" are not required to report data to OATS. Rather, the receiving Reporting Member is required to report to OATS the receipt of an order from the sending firm and any subsequent events relating to that order. Since no data is reported by, or on behalf of the sending member under the sending member's MPID, there is no data for the sending firm to monitor. FINRA, however, strongly encourages members that qualify for exclusion from the definition of an OATS Reporting Member to have a process in place to validate periodically that the receiving Reporting Member is reporting to OATS as required. This process may include obtaining a written statement from the receiving Reporting Member that they, to the best of their knowledge, are reporting all orders received from the sending member in compliance with the OATS Rules.

5. What criteria are required to qualify for exclusion from the definition of Reporting Member?

The Phase III amendments to the OATS Rules exclude from the definition of Reporting Member firms that meet all four of the following criteria:

The member must engage in a non-discretionary order routing process where the firm immediately routes all of its orders to a single receiving Reporting Member.

The member cannot direct or maintain control over subsequent routing or execution by the receiving Reporting Member.

The receiving Reporting Member must record and report all information under FINRA Rules 7440 (recording of order information) and 7450 (reporting of order information).

The member must have a written agreement with the receiving Reporting Member specifying the respective functions and responsibilities of each party.

6. One of the criteria necessary for being excluded from the definition of an OATS Reporting Member is that all of the member's orders be routed to a single receiving Reporting Member. Does this apply only to Nasdaq and OTC-listed securities?

Yes. Only those securities required to be reported to OATS (i.e., Nasdaq and OTC-listed equity securities) are covered by this requirement.

7. How will a receiving firm know if a firm submitting orders to it does not meet the definition of an OATS Reporting Member under NASD Rule 7410?

One of the criteria for a firm to qualify for exclusion from the definition of an OATS Reporting Member is that the member have a written agreement in place with the receiving firm to which it sends its order flow. Therefore, a written agreement must be in place between the sending and receiving firm before the sending firm can qualify for the exclusion provided for by NASD Rule 7410(n).

8. One of the criteria necessary to qualify for exclusion from the definition of an OATS Reporting Member is that the firm immediately route all of its orders to a single Reporting Member (Receiving Reporting Member). FINRA has further indicated that any delay in the routing of an order due to system problems or other reasons would require the member to report OATS data. Does this mean if my firm sends all its orders to our clearing firm and the clearing firm experiences a temporary system problem, my firm loses its status as a non-reporting member and must begin reporting OATS data? If so, is my firm required to report all orders beginning at the time of the system problem? Does my firm only have to report for the period of time my clearing firm's system is down?

The exclusion from the definition of OATS Reporting Member was included in the OATS Rules to eliminate potentially duplicative reporting (i.e., the sending and receiving member would be reporting to OATS substantially the same time of receipt, terms and conditions, etc.). If a member routinely experiences delays in routing orders to the receiving Reporting Member, then the order information will no longer be substantially similar and OATS will not have a complete audit trail. For example, in these instances, the original time of receipt from the customer will be different from the time of receipt reported by the receiving Reporting Member and, as a result, FINRA will not have the original time of receipt from the customer in its audit trail.

FINRA understands that periodic system glitches are sometimes unavoidable. Given the significant implications to members that do not meet the definition of OATS Reporting Member if a system problem were to delay their order routing for short period of time, FINRA has established the following steps a member must undertake if it wishes to maintain its exclusion to the definition of Reporting Member in the event of system problems that result in order routing delays.

Immediately upon becoming aware of a problem with its ability to route orders to its identified receiving Reporting Member, the firm must contact the FINRA OATS Help Desk and obtain a case number. The firm must provide FINRA with all available information regarding the system problem, including, but not limited to, the number of impacted orders, the estimated duration of the problem and whether orders were routed to another destination for execution during the system outage. The case number obtained from FINRA must be documented and retained by the firm.

The firm must document all steps it undertakes to rectify the situation.

The firm must take immediate steps to record all required OATS information for orders it is unable to transmit to its designated receiving Reporting Member. In this regard, firms relying on this exclusion to reporting member should have procedures in place describing the steps it will take under this scenario.

FINRA may send an inquiry letter to the firm upon review of the OATS Help Desk case to obtain any additional information the staff deems necessary. Based upon a review of the facts and circumstances, FINRA will determine if the non-reporting member is required to report OATS data for the orders impacted during the system outage. If FINRA determines such orders need to be reported, the staff will work with the member to facilitate transmission of these orders to OATS. In addition, these procedures are intended to address system problems that are unusual and infrequent. Depending on the facts and circumstances, repeated system problems may result in the firm being ineligible for the exclusion.

9. Question 8 above addresses situations in which an order cannot be immediately routed due to system issues. What if human error, such as a registered representative failing to follow firm policy, results in the delay of an order being routed to my designated Receiving Reporting Member or the order being routed to a destination other than my designated Receiving Reporting Member? Would my firm automatically lose its non-reporting member status?

FINRA recognizes that system problems are often unavoidable, and accordingly, isolated instances of order routing delays will not be viewed as automatically disqualifying a member from Non-Reporting Member status, provided certain steps are taken by the member as described in Question 8 above and no continuing pattern of routing delays exist. Likewise, FINRA also recognizes that isolated human error is often unavoidable. Therefore, isolated instances of order routing delays or isolated instances of an order being routed to a destination other than the designated Reporting Receiving Member due to human error will be treated in the same manner as routing delays attributable to system issues. Firms must follow the procedures outlined in question 8 above to receive the same consideration for human error as for system issues and to avoid the firm possibly becoming ineligible for the exclusion. As with system issues, repeated order routing issues attributable to human error may result in the firm being ineligible for the exclusion.

10. My firm has multiple clearing relationships. We send 100% of the orders received for one account to one clearing firm and 100% of the orders received for a second account to a second clearing firm. As such, do we meet the exclusion from the definition of Reporting Member under FINRA Rule 7410(n)?

No. One of the criteria for exclusion from the definition of Reporting Member under FINRA Rule 7410(n) is that "the member engages in a non-discretionary order routing process, pursuant to which it immediately routes, by electronic or other means, all of its orders to a single receiving Reporting Member." Firms sending orders to more than one clearing firm are not sending orders to a single receiving Reporting Member and, therefore, do not meet the criteria for exclusion from the definition of Reporting Member.

11. What are my obligations for order data submitted to OATS that is not required to be reported? For example, I am a Phase III firm, but my clearing firm has elected to report data on my behalf during Phase II.

A member firm is responsible for the accuracy of any data submitted to FINRA on its behalf, regardless of whether the data is required to be submitted by rule or not. Because such data reported to OATS is used in FINRA's market surveillance activities, it is critical that such data is timely, accurate and complete. If a member elects to submit data voluntarily, FINRA may pursue disciplinary action against that firm for any inaccuracies or other violations related to the submission of the data. Firms should note that an OSO relationship must be established within OATS before a reporting agent can submit data on behalf of another member. If your firm does not have an OATS reporting obligation and you do not wish to submit data voluntarily, you should contact the OATS Helpdesk to verify that no OSO relationships exist for your firm that would allow another entity, such as a clearing firm, to submit data on your behalf under your MPID. Firms that do not meet the definition of Reporting Member once the Phase III amendments become effective are also strongly encouraged to verify whether an OSO relationship exists to ensure that data is not being reported under their MPID by their clearing firm.

12. What responsibility, if any, does a designated Receiving Reporting Member have if the originating member with which it has entered into an agreement to allow the originating member to qualify as a Non-Reporting Member under FINRA Rule 7410(n), routes or executes an order in a manner that would disqualify the originating member from the exclusion (e.g. the originating member directs an order to a market center other than the designated Receiving Reporting Member)?

The originating member is responsible for compliance with all requirements of FINRA Rule 7410(n). If the originating member fails to meet the conditions for the exclusion as required by Rule 7410(n), the originating member, not the designated Receiving Reporting Member, would be responsible for any non-reporting by the originating member. However, if a designated Receiving Reporting member that has entered into an agreement to allow the originating member to qualify for the exclusion becomes aware that the originating member no longer meets all of the criteria for the exclusion (e.g., the originating member was directing order flow away from the designated Receiving Reporting Member), then the designated Receiving Reporting Member would be expected to cease coding its OATS new order reports from the originating member as a Non-Reporting Member in the Member Type Code immediately upon becoming aware that the originating member no longer meets the exclusion criteria. In these limited circumstances, a designated Receiving Reporting Member that continued to code an originating member's orders as coming from a Non-Reporting Member may be subject to disciplinary action for submitting an incorrect Member Type Code on its OATS new order reports. Any OATS reporting violations that may result from the originating member's failure to correctly identify itself as an OATS Reporting Member, and submit OATS data accordingly under its own MPID, would be the responsibility of the originating member and not that of the clearing firm. The originating member is responsible for ensuring that it is in compliance with the OATS Rules beginning the first day it ceases to meet all of the exclusion requirements as laid out in FINRA Rule 7410(n).

13. My firm acts as an introducing broker/dealer on a fully disclosed basis with multiple clearing firms. Can I qualify for the exclusion to OATS reporting under Rule 7410(n)?

If a firm routes orders in Nasdaq and OTC listed securities to more than one entity, the firm will not qualify for the exclusion under Rule 7410(n). For example, if a firm sends one category of orders to Clearing Firm A for further handling and execution and a second category of orders to Clearing Firm B for further handling and execution, the firm will not qualify for the exclusion under Rule 7410(n) because more than one entity makes routing or execution decisions with respect to the firm’s orders.

However, in the example above, although the firm will not qualify for the exclusion to the OATS reporting requirements, the firm may establish an OATS reporting relationship with each of these clearing firms whereby the clearing firms will report OATS data to FINRA on behalf of the firm. Specifically, Rule 7450(c) permits firms to enter into agreements with Reporting Agents, pursuant to which the Reporting Agent agrees to fulfill the OATS obligations of the firm. In the example above, the firm could establish Reporting Agent agreements with Clearing Firm A and Clearing Firm B, such that those clearing firms would report OATS information to FINRA on behalf of the firm under the firm’s MPID (not the clearing firms’ MPIDs). The firm remains responsible for compliance with all OATS reporting requirements, even though the data is actually submitted to FINRA by the clearing firm.

14. My firm currently meets all of the requirements to qualify for the exclusion from the definition of an OATS Reporting Member. A client calls and requests that my firm execute a cross transaction between two accounts controlled by the client. If my firm executes this cross in-house would we lose our OATS exclusion?
Yes. In order to qualify for the exclusion, a firm must meet all of the following four criteria:

The member must engage in a non-discretionary order routing process where the firm immediately routes all of its orders to a single receiving Reporting Member;

The member cannot direct or maintain control over subsequent routing or execution by the receiving Reporting Member;

The receiving Reporting Member must record and report all information under FINRA Rules 7440 (recording of order information) and 7450 (reporting of order information); and

The member must have a written agreement with the receiving Reporting Member specifying the respective functions and responsibilities of each party.

If the firm executes the cross transaction described in the question above, it will no longer meet the requirement that all orders must be immediately routed to a single receiving Reporting Member. Consequently, if the firm executes the cross itself, the firm will no longer be considered excluded from the definition of an OATS Reporting Member and would be required to immediately begin reporting to OATS.

15. What if, in a cross transaction scenario as, my firm sent both sides of the cross to my clearing firm with the customer's instruction to cross the orders. Would my firm still qualify for the exclusion from the definition of an OATS Reporting Member?
Yes. Because the customer, rather than the firm, directed the manner of execution by the clearing firm, your firm would not be deemed to have directed or maintained control over subsequent routing or execution by the clearing firm. Thus, your firm would still qualify for the exclusion from the definition of Reporting Member assuming that it meets the other three criteria described in FINRA Rule 7410. This supersedes guidance previously issued that stated a customer-directed order would disqualify a firm for the exclusion from the definition of Reporting Member. Firms should note, however, that all orders must be immediately routed to a single receiving Reporting Member. This means that all orders, including customer directed orders, must still be sent to the clearing firm for further routing. In addition, the clearing firm must report the order with a Special Handling Code of "DIR" to indicate that it was a directed order. In this example, if the firm were to send a customer directed order directly to the market center requested by the customer, it would lose its excluded status.

16. Can a member still qualify for exclusion from the definition of Reporting Member if orders immediately routed on a non-discretionary basis to a single receiving Reporting Member are handled on a riskless principal basis?
If the receiving Reporting Member maintains control of all routing and execution decisions with respect to such orders, the member firm would still qualify for exclusion from the definition of a Reporting Member provided that the riskless offsetting buy(s) or sell(s) are executed automatically, the excluded member does not exercise any discretion with respect to such offsetting riskless transactions, and the member continues to meet the other criteria in Rule 7410(o) to be considered excluded from the definition of Reporting Member. Further, any such riskless principal trades must meet all requirements of, and be reported pursuant to, FINRA transaction reporting rules governing riskless principal transactions.

1. What is the process for applying for an exemption from the OATS transmission requirements in Phase III pursuant to FINRA Rule 7470(d)?

Firms that meet all of the following criteria may formally request an exemption from the requirement to report manual orders during OATS Phase III:

The member and current control affiliates and associated persons of the member have not been subject within the last five years to any final disciplinary action, and within the last 10 years to any disciplinary action involving fraud;

The member has annual revenues of less that $2 million;

The member does not conduct any market making activities in NASDAQ and OTC Listed securities;

The member does not execute principal transactions with its customers; and

The member does not conduct any clearing or carrying activities for other firms.

To request an exemption, firms must complete an exemption request form and include relevant supporting documentation along with a statement as to why transmitting data to OATS on a daily basis would be unduly burdensome to the firm. View detailed information including the exemption request form.

2. What supporting documents need to be submitted with my application for exemption?

Firms that meet all five criteria must submit:

A completed exemption request form; and

A copy of the member firm's Certified Annual Audit Report that was prepared by the firm's public accountant.

3. My firm meets all of the criteria required to be eligible to request an exemption from the OATS transmission requirements pursuant to FINRA Rule 7470. We do, however, execute a principal transaction once every six months or so. Is my firm still eligible to apply for the exemption?

No. Firms must meet each of the five criteria necessary to apply for an exemption. If a firm's business model is such that principal transactions are reasonably expected to occur, even very infrequently, FINRA does not view that firm as meeting all of the eligibility criteria necessary to apply for the exemption.

4. One of the criteria necessary to apply for an exemption is that the member does not execute principal transactions with its customers? Does this apply only to principal transactions involving Nasdaq-listed equity securities?

No. This criterion applies to all equity securities (excluding equity derivatives such as options). It does not, however, apply to fixed income securities or mutual funds.

5. Does an exemption immediately expire if one of the criteria of the exemption were to change, for instance, if revenue exceeded $2 million?

Yes. Firms receiving exemptions whose business models change so that they no longer meet the exemption criteria must begin reporting to OATS immediately.

6. Regarding the revenue criteria, for what year should revenue be calculated?

Firms should use the year of their most recent Certified Annual Audit Report that was prepared by the firm's public accountant.

Order Receipt Time

1. A member firm's trading system is designed so that all customer orders entered on or delivered to the system must pass a "validation process." What should be reported to OATS as the order receipt time, the time the customer entered the order or the time the system finished with its validation?

The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes.

2. My firm receives an order via the Internet then reviews and releases the order. What is the order receipt time?

The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes.

3. Rather than accepting orders over the phone, my firm's customers type orders directly into our system. Under this scenario, is the order-received timestamp in Phase III the time it is captured in my system?

The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes.

4. If a basket of orders is received over the phone, what should be the order received timestamp for each order? The alternative times include the time the basket was received over the phone or the time each order was processed?

The time that the member records as the time of receipt for purposes of satisfying SEC Rule 17a-3(a)(6) is the time the firm should record as the OATS order receipt time. The order receipt time required to be recorded pursuant to SEC Rule 17a-3(a)(6) will always be the time of receipt for OATS reporting purposes.

5. What is the time of receipt for a manual order called in after hours?

The OATS time of receipt for after hours orders should be the same time the firm records to satisfy its SEC Rule 17a-3(a)(6) recording obligation with respect to that order.

6. In Notice to Members 05-78, FINRA provided guidance regarding the time of receipt on orders that went through a review and release process. Specifically, in Q5 of the Question and Answer Section of the Notice, FINRA stated that the time of receipt should be the time the order is received from the customer and that the review or other release practices of a firm would not change this requirement. Is this guidance consistent with subsequent guidance from FINRA that the time of receipt for OATS reporting purposes should be the time of receipt required to be recorded pursuant to SEC Rule 17a-3?

The time of receipt for OATS reporting purposes should always be the same as the time of receipt already required by SEC Rule 17a-3. Therefore, members that subject orders to a review and release process should record the time of receipt as required by SEC Rule 17a-3. Because FINRA does not interpret SEC rules, any questions regarding the interpretation of time of receipt under SEC Rule 17a-3 for purposes of orders subject to a review and release process should be directed to the SEC. In connection with Phases I and II, FINRA provided guidance as to time of receipt beyond referring to SEC Rule 17a-3. With Phase III, firms should look to SEC Rule 17a-3 and interpretations by the SEC for guidance rather than prior FINRA interpretations in determining time of receipt.(Last updated 5/10/06)

Desk Reports

1. For electronic orders, would the time the order was received by the member firm from the customer and the time the order was received by the member's trading desk or department be the same time?

It depends on the specific facts and circumstances. It is certainly possible that the time the member firm receives an order is the same time as the order is received by the member firm's trading desk. If, however, these two times are more than a second apart, the firm must report both the time the firm received the order and the time the trading desk received the order.

2. Is there any circumstance in which a Desk Report is not required when an order is transferred to the trading desk?

If an order is received at the firm and transmitted to the trading desk within a second, then a Desk Report is not required. The test is whether less than one second has transpired between the two events.

3. If my firm has multiple functions performed on the same desk or within the same department, such as program trading and non-program trading, would a Desk Report be required for orders sent between traders that perform those separate functions?

If separate and distinct functions are performed within the same desk or department of a firm, a Desk Report may be required if an order is passed between traders that perform different functions. For example, generally an order would be considered to have been transferred to another department for OATS reporting purposes, if it were transferred between functions that the firm considers to be independent aggregation units for purposes of SEC Regulation SHO (See SEC Rule 200(f)).

4. If my firm has multiple functions performed on the same desk or within the same department, how does the firm determine which Desk Code to use in the OATS Desk Report for orders received by such multi-function desks?

If an order is transmitted to a desk that performs multiple functions, the firm should populate the Desk Code with the code that identifies the function for which the specific order was routed to the desk. For example, if a program trading order is routed to a desk that engages in arbitrage activities as well as program trading , the OATS Desk Report should include a Desk Code of "PT" to indicate the order was transmitted to the program trading function on the desk.

5. An order is received at the Sales Desk and then sent to the trading desk for further handling. Subsequently, the customer modifies the order. The modification is then communicated to the trading desk by the Sales Desk. What are the OATS reporting obligations in this scenario?

In this instance, the firm must show the original receipt of the order and subsequent transfer to the trading desk via a New Order and Desk Report. The firm must then reflect the customer modification via a Cancel/Replace Report. If the sales trader then sends the modified order back to the trading desk, the receipt of the modified order must be reflected by another Desk Report.

6. An order for 10,000 shares is received at the Sales Desk and then sent to the trading desk in smaller pieces. The sales trader (as opposed to the customer) subsequently modifies the quantity of one of the pieces of the order that he previously sent to the trading desk. How should this modification by the sales trader be reported to OATS?

Anytime the trading desk (or other desk within a firm) receives instructions to modify an order previously transmitted to that desk, the firm must submit a Desk Report to reflect the modification. For example, if a Sales trader receives a 10,000 share order and then sends 4,000 shares of that order to the trading desk, the firm must report a New Order for 10,000 shares and a Desk Report for 4,000 shares. If the sales trader subsequently increases the quantity of the portion sent to the trading desk to 4,500 shares, the firm must submit another Desk Report reflecting the modified quantity of 4,500 shares. The firm is not required to report a Cancel/Replace to show the sales trader's modification to the order.

7. Our firm has an Order Room Department which brokers may call to have orders entered for various reasons ( for example, overrides are necessary or the broker doesn't have access to a computer). External money managers may also call the Order Room to have trades entered for the accounts which they manage. The Order Room personnel enter the order into our system which electronically routes the order to a third party market maker for further handling or execution. The market maker or market center to which an order is routed is determined based on pre-established criteria programmed into our system. The Order Room does not make routing decisions or execute trades. Is a Desk Report required to reflect receipt by the Order Room?

No. Because the Order Room is not making routing decisions or executing trades, a Desk Report would not be required. Desk Reports are generally only required when an order is transmitted to an area within the firm that makes routing decisions or executes orders. (Last updated 5/10/06)

Order Routing

1. How does the Order Shares Quantity differ from the Routed Shares Quantity on the Combined Order/Route Report or Execution Quantity on the Combined Order/Execution Report?

In most cases the Order Shares Quantity will be the same as the Routed Shares quantity on the Combined Order/Route Report. In the case of bunched routes that are reported via the Combined Order/Route Report, however, the Order Shares Quantity will reflect the quantity of each individual order received, while the Routed Shares Quantity will reflect the bunched amount. Order Shares Quantity and Order Execution Quantity on the Combined Order/Execution Report will be the same in all cases.

2. Is a dash allowable on the Routed Order ID and Sent to Routed Order ID fields on the Route and Combined Order/Route Reports respectively?

Yes. FINRA is now prescribing the format of the Routed Order ID to eliminate, to the extent possible, the risk of translation issues when passing Routed Order Ids between firms. The allowable format for the Routed Order ID and Sent to Routed Order ID fields is any alphanumeric character not containing a delimiter (which includes commas, semicolons, pipes and tabs) or spaces, blanks or leading zeroes. Under this definition a dash or hyphen would be allowable.

3. What are the reporting requirements for a clearing firm whose correspondent sends orders directly to other broker/dealers outside the clearing firm?

The clearing firm would not have an OATS reporting obligation with respect to orders directed away from it since it did not receive an order for further handling or execution.

4. What are the times that must be reported to OATS when a correspondent receives an order and sends that order to a clearing firm?

Assuming that the correspondent meets the definition of a Reporting Member, the correspondent must report the time that it received the order and the time that it routed the order to its clearing firm. The clearing firm in turn must report the time it received the order from the correspondent and the time that it routed or executed the order.

Manual Orders Received Prior to July 10, 2006

1. My firm received a manual order on Wednesday, July 5, 2006. The order was not executed until Monday, July 10, 2006. Am I required to report the execution to OATS, even though the order was not reported when it was received on July 5, 2006?

No. Pursuant to FINRA's OATS Rules, manual orders in NASDAQ-listed securities must be reported to OATS beginning July 10, 2006. Manual orders received or originated prior to July 10, 2006, are not required to be reported to OATS. In addition, order events occurring after July 10, 2006 relating to manual orders received or originated prior to July 10, 2006, are not required to be reported to OATS. Firms should note that subsequent events (Desk, Route, Execution, Cancel/Replace or Cancel Reports) related to orders not previously reported to OATS (i.e., manual orders received or originated prior to July 10, 2006) will be rejected by OATS. Rejections that occur as a result of submissions of order reports related to manual orders received before July 10, 2006 are not required to be repaired. Firms should note, however, that these rejections will appear in the daily OATS Statistics posted to the OATS web site.